Managing underperforming employees: how to avoid unfair dismissal claims

In the current economic climate, many businesses are having to navigate financial challenges, with an increase in bills and the impact of inflation. Businesses offering services have the added pressure of managing the effects of lower footfall and a decrease in consumer spending. Given these challenges, business owners may need to reevaluate their expenditure and workforce, especially if they do not need the same level of workforce as was previously required. If the business is near closing, it may need to make staff reductions in order to avoid administration. This could potentially fall under a redundancy situation. However, in all redundancy situations, it should not be used as a back door to terminate the employment of underperforming employees as this could leave the business open to unfair dismissal claims.

Unfair dismissal and redundancy lie at the heart of employment protection legislation. The right to claim unfair dismissal is a statutory right under the Employment Rights Act 1996 and generally, in order to qualify for unfair dismissal an employee must have two years’ continuous employment.

How to handle underperforming employees

Employers may be inclined to let go of employees who they consider to be underperforming first. However, ordinarily before dismissing an employee on such grounds the employer should have issued warnings to that employee. These should have outlined that an improvement was required in accordance with the employer’s disciplinary procedure. If the performance or conduct is unsatisfactory, then the employer may want to contemplate terminating the underperforming employee’s employment before they acquire two years’ service.

In a straightforward case, an employer’s only liability to an employee dismissed before they have acquired two years’ service is to pay out their notice period unless, of course, the employee has already actually worked out their notice period. There are, however, a large number of exceptions to this rule, and care should be taken as employees could allege discrimination if, for example, they feel that they are unfairly being singled out.

Employees with two years’ service or more will have gained unfair dismissal protection. Nonetheless, proper management of underperforming employees can significantly reduce an employer’s liability and help ward off tribunal claims. Clearly communicating their shortcomings, providing improvement plans or performance targets over a span of months and scheduling time to discuss targets on a quarterly basis, and potentially integrating these policies into a redundancy plan can be a strategic move. If the employee has only recently been underperforming or missing targets, it may be helpful to understand if there are any circumstances contributing to this.

The redundancy process

Redundancy is one of the potentially fair reasons for dismissal. A redundancy situation can arise in three situations: closure of a business; closure of a workplace; or a diminishing need for employees to do the available work. Financial constraints often lead businesses into the scenario where the demand for specific roles diminishes or ceases. In making any employees redundant, an employer must follow a fair procedure, encompassing advance warning and consultation, fair selection and offering alternative employment where available. An employer should not automatically decide what employees should be made redundant purely based on performance.

Once the business identifies the group of employees affected by the job cuts, it should reasonably define the selection pool. If there are a number of employees performing the same or similar roles, selection criteria including performance and disciplinary records usually come into play. These criteria may lead to underperforming employees being more susceptible to redundancy. However, it’s crucial to ensure that employees who aren’t meeting expectations are consistently reviewed by managers, ensuring scores assigned to redundancy selection criteria can be objectively justified. Managers should keep a written record of all reviews and any meetings where performance was discussed. Such an approach will then help to defend any unmeritorious claims.

If you have questions about how to manage a redundancy process, please contact Asha Kumar.